60 Days Without A 5% Correction And Counting

The beginning of every year under the New "centrally-planned" Normal regime is no stranger to seemingly relentless rallies: while in the first 29 trading days of 2013 alone, the benchmark S&P 500 Index has gained a respectable 6.5%, such initial strength out of the gates has in fact been the norm over the past three years, with the S&P 500 returning 7.5% and 5.7% during the first 29 trading days of 2012 and 2011, respectively. And, just like in 2013, both prior occasions were spun by pundits as indicative of great rotations, economic recoveries and what not, until reality reasserted itself when the gobs of liquidity pumped by western central banks finally made their way to China and sent local inflation surging at which point China pulled the plug in the "great reflation." This time will not be different, especially since as we showed yesterday, the market is now more bullish than 99% of all prior readings[4].

And while the recent spike in the market has been less acute than on previous occasions, what is notable about the current rally is the duration without any marked correction. As the following chart from Stone McCarthy shows, since March 2009, there have been only 4 times in which the rally continued for a longer period of time without a notable, or >5%, correction.

The number of trading days that the S&P 500 has been rising without a correction of greater than 5% is now at 60. (Note: For this report, corrections are measured using closing daily levels.) Not surprisingly, going unchecked for so long has prompted a sharp increase in the number of talking heads proclaiming that the market is due for a pullback of at least 5% - 7%. While we are also in this camp, based mainly on combination of market breadth, extreme sentiment, wave structure and intermarket divergences, we also respect the fact that stimulative policies continue to manipulate market psychology.

As today's report uncovers, the current 60-day stretch without a correction of > 5% is longer than both the average and median stretch since the start of the post-March 2009 rally. In terms of percentage return, however, the current 12% rally from the 11/15/12 low is still shy of the 15% median and 18% average.